Home loan transfer: A facility among home buyers is becoming increasingly popular- home loan balance transfer or loan switch and refinancing. In this, customers can transfer their existing home loans from one bank to another, if the other bank is giving better interest rates or conditions. Now there is strong competition between banks and NBFCs. In such a situation, many financial institutions offer loan transfer facilities at low interest rates and easy terms.
However, in the beginning this process may look a bit complex. But, if you are in the early or mid -term of your loan, when interest payment is the highest, this step can give a lot of advantage in the long term.
Savings of millions due to reduction in interest rate
The most direct advantage of home loan balance transfer is- interest rate cut. A reduction of only 0.5% can also save millions of rupees in the entire loan tenure.
For example, if you have taken a loan of ₹ 50 lakh at 9% interest for a period of 30 years and transfer it to 8.5%, then your EMI will come down from ₹ 40,231 to ₹ 38,446. In such a situation, the total interest savings will be around ₹ 6.43 lakh. This has two advantages. If you want, you can reduce your EMI or take the option to repay the loan quickly.
You can see the calculation of savings in interest for different loans in the table below.
| Loan tenure | Total interest @ 9% | Total interest @ 8.5% | Total savings |
| 10 years | ₹ 26,00,875 | ₹ 23,89,061 | ₹ 2,11,814 |
| 15 years | ₹ 41,28,424 | ₹ 38,05,726 | ₹ 3,22,698 |
| 20 years | ₹ 57,96,552 | ₹ 52,24,172 | ₹ 5,72,380 |
| 25 years | ₹ 76,55,451 | ₹ 68,66,156 | ₹ 7,89,295 |
| 30 years | ₹ 94,83,040 | ₹ 88,40,552 | ₹ 6,42,488 |
Note: This calculus is based on the Amortized Home Loan Calculation, not on the basis of flat rate. In each case, the balance transfer has been considered applicable for the entire duration of the loan. The actual savings will depend on processing fees, tax and transfer timing.
Low EMI = more money in pocket
Due to low interest rate, your monthly installment ie EMI also decreases. This saves extra money in your hand of every month. You can spend these money on other needs, such as children’s education, investment or holiday plan.
There is a chance of getting better conditions
Many times when the customer takes a home loan, he does not have much options. He mostly sees which bank is giving loans so easily. Later it is revealed that some banks are offering better customers service, more flexible repayment options, or top-up loan.
In such a situation, loan transfer can be a very good option.
- You can get better customer service while transferring balance.
- Some banks also offer zero prepament charge.
- You can decide the loan duration according to your current economic conditions.
Top-up loan option
If you need additional funds, such as home repair, new furniture, or any personal expenses, then the new lender can give you the top-up loan with the same balance transfer.
These top-up loans are cheaper than personal loans and usually do not require separate approval process.
Improvement in credit score
Refining your new loan and repaying it on time makes your credit score better. Especially when you repay EMI regularly to the new lender at a low interest rate, it has a positive impact on your credit history. This can make it easier to get a car loan, personal loan or other credit facility in future.
Keep these things in mind
There are many advantages of home loan balance transfer, then there may be some disadvantages. You should also look at the loss aspect before taking the final decision.
- Additional Expenditure: Processing fees, stamp duty, technical and legal charges can make the transfer expensive.
- Less benefits in short duration: If most of the installments of the loan have already been filled, the savings are very low.
- Documentary mess: The entire KYC, valuation and other paper process with the new bank are taking time.
- Impact on credit score: Repeated transfer or any mistake, the credit profile can damage.
- New conditions can be strict: The new loan donor can impose more strict rules or charges than before.
If you are saving interest and EMI despite these factor, then the decision of the home loan balance transfer can prove to be intelligent. If you are getting confused, you can also consult a financial advisor.
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